The New Energy Conversation

For forty years, presidents and policymakers have promised and planned for a new energy future just over the horizon. While the rationales have varied – reducing dependence on imported oil, stopping global warming, reducing air pollution, creating clean energy jobs – the song has largely remained the same: America has most, if not all, of the technologies needed today to make a quick and relatively painless transition away from fossil fuels.

Yet America is more dependent upon fossil fuels than ever before. U.S. oil consumption rose from 15 to 20 million barrels a day between 1970 and today, while coal still provides about 50 percent of our electricity. U.S. carbon emissions continue to rise unabated, as efforts to cap them have repeatedly foundered in the face of daunting political, economic, and technological obstacles. And renewable technologies like wind and solar only meet a tiny fraction of America’s energy needs despite several decades of efforts to subsidize their deployment.

When experts convene in Washington next week to discuss energy policy, they will do so in the wake of yet another failed federal effort to pass legislation to support a transition away from fossil fuel-based energy.

Just a few short years ago, prominent venture capitalists and technology companies promised to unleash an energy technology revolution, claiming that they were developing new technologies that would transform the global energy economy in the same way computers, microchips, and the Internet had transformed information and communications just a decade earlier. Wall Street analysts were talking up clean tech as the next major growth sector of the global economy. And policymakers promised millions of new “green” jobs and tens of billions of dollars in net exports.

Things did not turn out as planned. Federal stimulus investments, which saved the renewables industry during the financial crisis, are set to expire. Clean tech firms are in trouble, with Wall Street rushing to short clean tech stocks. Carbon pricing in Europe has failed to unleash the expected revolution in the continent’s energy economy. And both international and domestic efforts to cap or price carbon emissions are in shambles. Clean energy advocates should be chastened at the consequences of counting on a two-year stimulus program and carbon pricing from cap and trade to suffice as an innovation program. Innovation demands public support for investment and takes anywhere from years to decades, not months.

The promise of a clean, secure, and prosperous energy future continues to disappoint because it has been, for four decades, premised on the notion that the technologies necessary to deliver that future are close at hand. They are not. And until U.S. policymakers come to terms with that reality and reconfigure U.S. energy policy centrally around energy technology innovation, such hopes will remain pyrrhic.

An Honest Appraisal of Costs and Benefits

Now that sky-high clean tech promises have fallen back to earth, we can paint a more accurate and nuanced picture of the potential national security, economic, health, and safety benefits for the United States and the world. Fossil energy has provided wondrously cheap energy to power human civilization, but not without significant negative consequences, including roughly two million air pollution deaths, 2,000 coal mining deaths, and hundreds of oil and gas deaths annually. And for the United States, its heavy reliance on imported oil has acute economic and security costs.

Transporting and defending fuel for the military conflicts in Afghanistan and Iraq costs America every day in both dollars and lives. Energy is thus already a big area of concern for the DoD. New energy sources would enable our defense forces more flexibility and less risk on the battlefield and off.

Cheaper, cleaner energy at home and abroad will also help the U.S. economy. At home, over $250 billion of America’s $380 billion trade deficit in 2009 was from imported oil. Beyond displacing oil imports, if the United States could lead in the production of clean energy products and services, we would create more good jobs and exports.

Abroad, fossil energy is too expensive for about two billion humans, who still rely on wood and dung as their main sources of energy. Billions more consume far too little energy. Rising energy consumption is strongly correlated with longer life spans, improved health, and higher incomes. That wealth is in America’s interests, as it creates demand for American products and reduces low-wage competition.

Energy innovation is also in our environmental interest. There are many environmental benefits that include, but also go well beyond, reducing global warming and air pollution. Coal mining, for example, devastates mountains, many have been destroyed entirely. Meanwhile, parts of the Nigerian Delta, the Ecuadoran rainforest, and the Gulf of Mexico have been harshly impacted by oil spills.

In fact, one need not believe that global warming poses any risk at all in order to support an energy innovation agenda in the United States and elsewhere.

Real World Innovation

How, then, can we get it done? The new conversation about energy innovation begins from the recognition that the cost and functionality gap between today’s fossil energy and its alternatives remains wide, and that any serious effort to move away from fossil energy requires closing it – not through unsustainable subsidies to reduce prices, but through innovation that will drive down the real cost of clean energy.

Fossil fuels are dense, dispatchable, and widely available. Renewables are intermittent, less dense, and expensive. The latest Energy Information Administration (EIA) numbers show that electricity from new on-shore wind remains about 50 percent more expensive than coal. Electricity from new utility-scale solar photovoltaic (PV) power plants and solar thermal power plants are five and three times more expensive, respectively, than new natural gas power plants. Battery powered cars cost more to produce than those fueled by gasoline. Nuclear plants offer base-load power and provide relatively low-cost power in other countries, but the industry has stalled in the U.S. as big new plants have proved to be unacceptably expensive, requiring more affordable alternative models.

As such, a new energy policy needs to be based on driving down costs and improving the performance of these energy alternatives. Scientific and technological breakthroughs will likely be required before clean energy alternatives can compete, unaided by subsidies, with petroleum and coal.

But these breakthroughs will be insufficient without public-private partnerships for a national clean energy innovation policy. Numerous “market failures,” including high levels of uncertainty, technology path dependency, and spillovers from research, necessitate clean energy policy that must include larger, sustained, and strategic public investment to achieve critical breakthroughs.

Throughout American history, aggressive government procurement, research, and innovation efforts have delivered a pantheon of remarkable technologies, from the basic technologies of the iPhone, GPS, radar, the Internet, cancer-fighting drugs, and jet turbines. Against the widespread perception that American energy funding has been nothing more than an extended bureaucratic disaster, from Synfuels to ethanol, consider the critical role played by government-funded electrification, hydro-electric power, nuclear power, solar power, wind power and natural gas turbines.

How can we use military-style procurement to accelerate energy innovation? What can we learn from NIH’s funding of cancer research? What can we learn from over a century and a half of agricultural research? What’s the right mix of support for government research vs. private sector research?

A new energy innovation framework would also recognize that each low-carbon technology is on its own path and innovation policies should vary accordingly. For years the orthodoxy has been that “governments shouldn’t pick winners and losers,” and while there is important truth to this admonition, there is also danger in it. The truth is that we should not pick specific technologies and firms, i.e. choosing to support a particular kind of solar panel or battery technology. We should, however, be supporting broad technology areas, from nuclear to solar to batteries and biofuels, with specific investments. What do we need to accelerate the development of solar, batteries and biofuels — and what do nuclear and carbon capture and storage require?

Finally, the new energy conversation also raises questions about whether to invest in immediate deployment or longer-term innovation, as well as the relationship between the two. A focus exclusively or even largely on subsidizing the deployment of current technologies risks locking in existing suboptimal technologies while limiting innovation for both improved and breakthrough technologies. Deploying new technologies can improve their performance and drive down their cost — but not always. Subsidies for production — of corn ethanol, solar, nuclear, and wind — may in fact create an advantage for firms to produce more of today’s technologies, not invent tomorrow’s advanced new ones.

But likewise, an exclusive focus on the development of improved and breakthrough technologies risks separating the valuable link whereby development is informed by the challenges of deployment. A truly comprehensive energy policy is mindful of the need to keep this balance, to ensure a minimal private-sector industrial base in clean technology upon which a clean economy could be built in the future. Still, in many cases we would do better concentrating more federal support on incentives to create advanced technologies that have the potential to become much cheaper than today’s mass-produced ones.

Many energy advocates understandably focus on what can be done in the short-term, in the next Congress, but the important conversation is about what can be done over the long-term. Many of America’s most important technology projects spanned presidencies and Congresses, just as they crossed party lines. This was the case with armaments and agriculture in the 19th Century. In the 20th century, Eisenhower started and Kennedy continued microchip and other military procurement of advanced communications technologies. Nixon turned America’s biowarfare program into medical research program, and a Republican Congress in the late 1990s increased NIH funding with the cooperation of a Democratic president.

Conclusion

America is built around innovation. We expect innovation. We drive innovation. And we experience innovation. Everywhere that is, except in energy. For the most part, we still use the same fuels in our cars and our electricity generation that we did a century ago. In no other area of our economy would Americans accept such stasis.

It’s time to change that. It’s time to drive energy innovation. Even though fossil energy has been critical to security and prosperity for more than a century, during the 21st century we can and need to do better with newer, cleaner technologies. America has a longstanding commitment to moving toward cleaner sources of energy, whether natural gas and nuclear or solar and wind. But this commitment needs to be stronger, and more strategically built around particular technology pathways and policies focused on innovation. And this effort should be undertaken patiently, with an eye to create real bipartisan agreement that lasts for decades, not years.

The Energy Innovation 2010 conference aims to hit the restart button on energy policy and politics. The conversation will begin with an honest discussion of the advantages of moving away from fossil energy. What economic, security, health, safety, and environmental benefits can be reasonably expected from energy innovation? From there we will ask, what can we learn from past federal innovation successes with armaments, agriculture, transportation, medicine, energy, and communications? At noon we will explore what kinds of technological pathways must be pursued to make low-carbon alternatives much cheaper and more scalable. And in the afternoon the conversation will be framed around getting it done — innovation policy, the business community, and the bipartisan political consensus.

About the author

Dr. Robert D. Atkinson is one of the country’s foremost thinkers on innovation economics. With has an extensive background in technology policy, he has conducted ground-breaking research projects on technology and innovation, is a valued adviser to state and national policy makers, and a popular speaker on innovation policy nationally and internationally. He is the author of "Innovation Economics: The Race for Global Advantage" (Yale, forthcoming) and "The Past and Future of America’s Economy: Long Waves of Innovation That Power Cycles of Growth" (Edward Elgar, 2005). Before coming to ITIF, Atkinson was Vice President of the Progressive Policy Institute and Director of PPI’s Technology & New Economy Project. Ars Technica listed Atkinson as one of 2009’s Tech Policy People to Watch. He has testified before a number of committees in Congress and has appeared in various media outlets including CNN, Fox News, MSNBC, NPR, and NBC Nightly News. He received his Ph.D. in City and Regional Planning from the University of North Carolina at Chapel Hill in 1989.

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